A fairly priced stock has an expected return equal to the market's. Treasury bonds yield 5% pa and the market portfolio's expected return is 10% pa. What is the stock's beta?
Estimate the US bank JP Morgan's share price using a price earnings (PE) multiples approach with the following assumptions and figures only:
- The major US banks JP Morgan Chase (JPM), Citi Group (C) and Wells Fargo (WFC) are comparable companies;
- JP Morgan Chase's historical earnings per share (EPS) is $4.37;
- Citi Group's share price is $50.05 and historical EPS is $4.26;
- Wells Fargo's share price is $48.98 and historical EPS is $3.89.
Note: Figures sourced from Google Finance on 24 March 2014.
The CAPM can be used to find a business's expected opportunity cost of capital:
###r_i=r_f+β_i (r_m-r_f)###
What should be used as the risk free rate ##r_f##?
Question 639 option, option payoff at maturity, no explanation
Which of the below formulas gives the payoff ##(f)## at maturity ##(T)## from being short a put option? Let the underlying asset price at maturity be ##S_T## and the exercise price be ##X_T##.
In February a company sold one December 40,000 pound (about 18 metric tons) lean hog futures contract. It closed out its position in May.
The spot price was $0.68 per pound in February. The December futures price was $0.70 per pound when the trader entered into the contract in February, $0.60 when he closed out his position in May, and $0.55 when the contract matured in December.
What was the total profit?
Question 659 APR, effective rate, effective rate conversion, no explanation
A home loan company advertises an interest rate of 9% pa, payable monthly. Which of the following statements about the interest rate is NOT correct? All rates are given with an accuracy of 4 decimal places.
Radio-Rentals.com offers the Apple iphone 5S smart phone for rent at $12.95 per week paid in advance on a 2 year contract. After renting the phone, you must return it to Radio-Rentals.
Kogan.com offers the Apple iphone 5S smart phone for sale at $699. You estimate that the phone will last for 3 years before it will break and be worthless.
Currently, the effective annual interest rate is 11.351%, the effective monthly interest rate 0.9% and the effective weekly interest rate is 0.207%. Assume that there are exactly 52 weeks per year and 12 months per year.
Find the equivalent annual cost of renting the phone and also buying the phone. The answers below are listed in the same order.
Question 821 option, option profit, option payoff at maturity, no explanation
You just paid $4 for a 3 month European style call option on a stock currently priced at $47 with a strike price of $50. The stock’s next dividend will be $1 in 4 months’ time. Note that the dividend is paid after the option matures. Which of the below statements is NOT correct?
You bought a 1.5 year (18 month) futures contract on oil. Oil storage costs are 4% pa continuously compounded and oil pays no dividends. The futures contract is entered into when the oil price is $40 per barrel and the risk-free rate of interest is 10% per annum with continuous compounding.
Which of the following statements is NOT correct?